With only a few days are left, the big questions remain unanswered. Will his 2012 pay break through the psychological barrier of $852,000 set in 2011? Is the once-unimaginable million dollar compensation level within sight for Canada’s reigning champion of municipal employee compensation?
With Toronto Hydro’s Annual Information Form for 2012 to be posted on SEDAR before the close of the current quarter, we’ll finally be able to put to rest the question of how much electricity consumers in the city paid CEO Anthony Haines.
On the surface, it might appear that Haines is struggling. Toronto Hydro’s 2012 profits are down $10 million over 2011. The key reason for the profit drop in 2012 was a $28 million staff downsizing program, executed while the utility continued its costly staff training and recruitment programs. The utility’s regulatory strategy has been out of compliance with the Ontario Energy Board’s rules since August 2011. The average duration of outages in Toronto — never better than mediocre — more than doubled the average outage duration in Mississauga in 2012.
Notwithstanding these poor results, it appears that not just Haines’ base pay, but also his incentive pay, will both hit new record highs. In addition, in 2012 he got a boost with a new $50,000 retirement allowance — a category of compensation introduced in 2011 by Toronto Hydro only for Haines and payable even if he is fired. That retirement allowance is ramping up at a rate of $90,000 per year. Also locked in is Haines’ golden parachute “termination payment”, which kicks in if he is fired “without cause”. In 2011, this firing bonus for Haines worked out to $1.4 million but is expected to ramp up by at least $200,000 in 2012.
Toronto Hydro’s practice of rewarding bad management with record-busting compensation is symptomatic of an unsupervised utility.
The utility’s Board of Director continues to allow Haines to pursue a regulatory strategy based on flouting the Ontario Energy Board’s directions for electricity distributors. The incentive pay scheme for executives, set by the Board of Directors, is based on surpassing absurdly lax standards in areas such as reliability.
The Ontario Energy Board continues to fail to respond Toronto Hydro’s statements and actions undermining the reliable delivery of power to consumers. As reported previously, on January 5, 2012 Toronto Hydro issued a statement containing a direct threat to public safety. According to the statement, a decision of the regulator ordering Toronto Hydro to comply with the rules applicable to all electricity distributors “will impact …customer… safety”. The OEB did not respond. Also as reported previously, when Hurricane Sandy hit, Toronto Hydro was withdrawing its emergency crews just when every other utility in the path of the storm was deploying all available crews. The utility’s approach appeared to be part of its strategy to pressure the OEB into approving a huge increase in capital spending. Because of the methodology used to calculate executive bonuses, the go-slow Hurricane Sandy recovery will not be reflected in the reliability statistics. After the OEB failed to respond, the utility pursued a similar strategy with the Thorncliffe Park blackout over the period March 8-10. In the Thorncliffe Park case, the strategy was to ignore routine maintenance until the equipment failed, and then blame the blackout on “aging infrastructure”. So far, the OEB has not responded to the Thorncliffe Park blackout.
Toronto City Council, which owns Toronto Hydro, continues to fail to supervise its asset. Toronto City Council shows every indication of being overawed by Haines. One illustration of this governance gap was City Council’s failure to respond to Haines’ misleading presentation October 16, 2012 (see slide 22).
Haines’ key message for his October 2012 presentation, a key message he repeated to the energy industry here and repeated recently by other executives including Blair Peberty on CBC here and repeated through Toronto Hydro’s web site here, is that Toronto Hydro’s power distribution rates are not increasing. The key factors that Haines relies upon to conceal Toronto Hydro’s actual rate trend, which is skyrocketing, are to use rate data that blends in amalgamation-related rate harmonization impacts and also external rate riders recovering costs that have nothing to do with Toronto Hydro.
Here is data for the monthly bills for a residential customer using 800 kWh per month for the period 2005 to 2011. The first series is the Haines version of the story and the second series is Toronto Hydro’s monthly fixed charge and volumetric charge without any rate riders.
Note that there was a big drop in the Haines version from 2005 to 2006. This drop was only experienced by pre-amalgamation Toronto Hydro customers. For customers from any of the other smaller utilities merged into Toronto Hydro, such as City of York Hydro or Scarborough Hydro, the rate change from 2005-2006 was a dramatic increase. Starting in 2006, all customers in the amalgamated Toronto Hydro were subject to the same rates.
During the years 2005-2007, all of Ontario’s distribution utilities were recovering costs associated with the Ernie Eves rate freeze of 2002.
For the years 2006 through 2011, the increase in Toronto Hydro’s underlying rates was 25.5%, or about 5% per year.
Because of Toronto Hydro’s bungled regulatory strategy, the utility’s rates for 2012 have yet to be determined.
Toronto City Council continues to treat Toronto Hydro as if nothing is wrong.